New Perspectives on Role and
Structure in the Management
g
of
Information Systems & Technology
Carl Adams, Gautam Ray & Eric Larson
CIO Collaborative
Research on IS/IT
Organizational Design
and Governance
3/25/2009
‰ What are the role and structure of the IS/IT
function and why do we care?
‰ What are the contingencies that effect IS/IT
structure?
‰ What evidence do we have regarding the
most prevalent IS/IT structure?
‰ What are some more specific
characterizations of IS/IT structure?
3/25/2009
1
Data
Processing
MIS
IT
Business
Technology
1980
1960
2000
Hig
gh
Operations
O
ti
Improvement
Partner
General
Partner
Supporter
Business
Innovation
Partner
Low
IS Involvement in Initiattion of
Bu
usiness Operations Imprrovement
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Low
High
IS Involvement in Initiation of Business Innovation
3/25/2009
2
100%
% IS/IT Roles
80%
60%
40%
20%
0%
1980s
1990s
2000s
2010s
General Partner
Business Innovation Partner
Operations Improvement Partner
Supporter
3/25/2009
A pattern of decision making for activities like management
o
ast uctu e, app
cat o development,
de e op e t, se
ce
of IT infrastructure,
application
service
delivery, and IT investment.
The key issue is whether decision
making is delegated to the business unit
or centrally controlled by corporate
headquarters.
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3
NOT ONE SIZE FITS ALL!
‰ There is no best or ideal IT governance
structure.
‰ IT governance should fit the
organizational and environmental
context.
3/25/2009
DYNAMISM
Dynamism – Refers to the volatility & unpredictability of changes
in the environment that a firm has to deal with. Industries with
higher uncertainty in demand, for example, are more dynamic.
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4
MUNIFICENCE
Munificence – Refers to the opportunities for growth within an
industry. Firms need to adopt structures that can help them to
capture these opportunities for growth.
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COMPLEXITY
Complexity – Refers to the number and heterogeneity of taskenvironment elements that a firm has to interact with. The larger
the number and heterogeneity of the entities (e.g., competitors) a
firm has to deal with, the more complex the environment.
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5
FIRM/BUSINESS UNIT SIZE
Business Unit Size – Economies of scale may make it more likely
that decision authority is delegated to larger business units.
Firm Size – Diseconomies of managing make it difficult to
coordinate decisions across a larger firm.
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FIRM STRATEGY
Firm Strategy – A firm may choose an efficiency or innovation
orientation, or a balance of both.
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6
GROWTH MODE
Growth Mode – Whether a firm grows through internal
development or through acquisitions, is likely to influence
the decision making structure.
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CORPORATE STRUCTURE
Corporate Structure – The IT function structure may mimic
the corporate structure.
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7
BUSINESS RELATEDNESS
Business Relatedness – The synergy (i.e., relatedness)
between different business units may influence the IT
decision making structure.
3/25/2009
LOCAL IT KNOWLEDGE
Local IT Knowledge – The IT knowledge/capability available at a
business unit may influence the IT decision making structure.
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8
Impact on
Return
(ROA)
I
Impact
t on
Stock Market
Valuation
(Tobin’s q)
Firms with Average IT
Governance Alignment
0.166 ***
(0.052)
2.183 ***
(0.660)
Firms with Good IT Governance
Alignment
0.420 ***
(0 090)
(0.090)
4.088 ***
(1 143)
(1.143)
Firms with Poor IT Governance
Alignment
-0.088
(0.057)
0.278
(0.725)
IT Investment
*** Significant at 5% level.
Good IT Governance = Misalignment less than one standard deviation from average
Poor IT Governance = Misalignment greater than one standard deviation above average.
3/25/2009
‰ Centralization – decisions are made at the corporate level
regarding IT.
‰ Promotes:
‰ Efficiency
‰ Economies of Scale
‰ Buying power
‰ Standardization
‰ Consistency
‰ One Face Initiatives
‰ Corporate Level Reporting
Conventional Wisdom:
Centralize decisions regarding infrastructure, platforms, networks
where there is no real advantage to customization to meet local
needs.
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9
‰
Decentralization – decisions are made in the business units
regarding IT.
‰ Promotes:
‰ Responsiveness
‰ Innovation
‰ Customization
‰ Business Autonomy
Conventional Wisdom:
Decentralize decisions regarding applications and business
processes to align with local business requirements.
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Factor
Firm Size
Business Unit Size
Current Condition
Larger firms
Larger business units
Expected
Effect
Decentralize
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10
Factor
Current Condition
Expected
Effect
Firm Size
Business Unit Size
Larger firms
Larger business units
Decentralize
Firm Strategy
Growth Mode
Varies by Firm
Mergers & Acquisitions
↔
?
Decentralize
3/25/2009
Factor
Factor
Current
Current Condition
Condition
Expected
Expected
Effect
Effect
Firm
Firm Size
Size
Business
Business Unit
Size
Unit Size
Larger
Larger firms
firms
Larger
Larger business
business units
units
Decentralize
Decentralize
Firm
Firm Strategy
Strategy
Growth
Growth Mode
Mode
Varies
Varies by
by Firm
Firm
Mergers
Mergers &
& Acquisitions
Acquisitions
↔
?
Decentralize
Decentralize
Corporate
Corporate Structure
Structure
Sense
Sense and
and respond,
respond, divisional,
divisional,
localized,
localized, constant
constant innovation
innovation
Related/Unrelated
Related/Unrelated
Decentralize
Decentralize
Relatedness
Relatedness
↔
?
3/25/2009
11
Factor
Factor
Current
Current Condition
Condition
Expected
Expected
Effect
Effect
Firm
Firm Size
Size
Business
Business Unit
Unit Size
Size
Larger
Larger firms
firms
Larger
Larger business
business units
units
Decentralize
Decentralize
Firm
Firm Strategy
Strategy
Growth
Growth Mode
Mode
Varies
Varies by
by Firm
Firm
Mergers
Mergers &
& Acquisitions
Acquisitions
↔
?
Decentralize
Decentralize
Corporate
Corporate Structure
Structure
Decentralize
Decentralize
Relatedness
Relatedness
Sense
Sense and
and respond,
respond, divisional,
divisional,
localized,
localized, constant
constant innovation
innovation
Related/Unrelated
Related/Unrelated
IT
IT Knowledge
Knowledge
Better
Better IT
IT expertise
expertise
↔
?
Decentralize
Decentralize
3/25/2009
Factor
Factor
Current
Current Condition
Condition
Expected
Expected
Effect
Effect
Firm
Firm Size
Size
Business
Business Unit
Size
Unit Size
Larger
Larger firms
firms
Larger
Larger business
business units
units
Decentralize
Decentralize
Firm
Firm Strategy
Strategy
Growth
Growth Mode
Mode
Varies
Varies by
by Firm
Firm
Mergers
Mergers &
& Acquisitions
Acquisitions
↔
?
Decentralize
Decentralize
Corporate
Corporate Structure
Structure
Decentralize
Decentralize
Relatedness
Relatedness
Sense
Sense and
and respond,
respond, divisional,
divisional,
localized,
localized, constant
constant innovation
innovation
Related/Unrelated
Related/Unrelated
IT
IT Knowledge
Knowledge
Better
Better IT
IT expertise
expertise
Environmental
Environmental
Uncertainty
Uncertainty
Volatility
Extreme Volatility
High
High Complexity
Complexity
↔
?
Decentralize
Decentralize
Decentralize?
Decentralize
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12
Decen
ntralized
Logit Ratio
(0.98)
(0.95)
(0 95)
Unrelatedness=2
U
l t d
2
(0.88)
Unrelatedness=1
(0.73)
Unrelatedness=0
Centralize
ed
(0.50)
Munificence
(0.27)
(0.12)
(0.05)
3/25/2009
Factor
Factor
Current
Current Condition
Condition
Expected
Expected
Effect
Effect
Firm
Firm Size
Size
Business
Business Unit
Size
Unit Size
Larger
Larger firms
firms
Larger
Larger business
business units
units
Decentralize
Decentralize
Firm
Firm Strategy
Strategy
Growth
Growth Mode
Mode
Varies
Varies by
by Firm
Firm
Mergers
Mergers &
& Acquisitions
Acquisitions
↔
?
Decentralize
Decentralize
Corporate
Corporate Structure
Structure
Decentralize
Decentralize
Relatedness
Relatedness
Sense
Sense and
and respond,
respond, divisional,
divisional,
localized,
localized, constant
constant innovation
innovation
Related/Unrelated
Related/Unrelated
IT
IT Knowledge
Knowledge
Better
Better IT
IT expertise
expertise
Environmental
Environmental
Uncertainty
Uncertainty
Volatility
Extreme Volatility
High
High Complexity
Complexity
Demand for
Coordination
Customer Synergy
Operations/Supply Side
Regulatory Pressure
↔
?
Decentralize
Decentralize
Decentralize?
Decentralize
Centralize
3/25/2009
13
Managing IS/IT
Operations
Improving/Changing
Business Processes
Managing Technology
Assets
DECENTRALIZED
Defining/Prioritizing
Projects
Managing Human
Resources
CENTRALIZED
Managing IS/IT
Demand Use
Managing Financial
Resources
Assessing IS/IT
Performance
Strategic IS/IT
Decisions
Managing Projects
Locus of IS/IT Decision Making
3/25/2009
‰ One Face Initiatives
‰ Customer Experience/Cross Selling
‰Projects Leveraged Across Business Units
‰ Supply Chain Integration
3/25/2009
14
Why is this structure suddenly different than what we would
expect?
What are the environmental forces that have
changed?
‰ Technology Affordances
‰ Demand Drivers
‰ Knowledge Economy
Demand for Coordination
‰ Supply
S ppl Chain
‰ Sarbanes-Oxley
3/25/2009
Coordination
Innovation
I
ti
3/25/2009
15
Hierarchy
Fast, efficient, myopic
Standards
‰ Processes
‰ Outputs/Work Products
‰ Inputs/Resources
Empowerment with Constraints
Mutual Adjustment
Slow, expensive, comprehensive
Source: Mintzberg, 1980.
Culture
Goals, Shared Values
3/25/2009
Integration
Architectures
Coordination &
Identity
Relational
Architectures
Solution
ns Delivery
Value-Cha
ain Extension
Operationa
al Excellence
Knowle
edge Work
Lev
verage
Value Innovation
IT
Capabilities
IT-E
Enabled
Busines
ss Platform
Intra- and Interorganizational
Relationships
Source: Sambamurthy & Zmud, Information Systems Research, 2000.
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16
‰ Functional Level
‰ 8 Base IT Capabilities – Hierarchical
g Network – Mutual Adjustment
j
‰ Sourcing
‰ Firm-Level
‰ Co-Evolution Alignment – Hierarchical
‰ Visioning Network – Hierarchical
‰ Innovation Network – Mutual Adjustment
‰ Archetypes
‰ Partner Model
‰ Platform Model
‰ Scalable Model
Source: Agarwal & Sambamurthy, MIS Quarterly Executive, 2002
3/25/2009
The Partner Model
Collaborator
IT as Proactive Partner in Innovation Process
‰ Focus on Innovation
Networks
‰ Co-evolution via
interaction of CIO, DIO
and Business executives.
Source: Agarwal & Sambamurthy, MIS Quarterly Executive, 2002
3/25/2009
17
The Platform Model
Enabler
Enterprise-wide Platform & Capabilities
‰ Mix of Innovation and
Sourcing Networks.
‰ Innovation led by IT
knowledegable business
executives.
‰ World-class IT
infrastructure.
Source: Agarwal & Sambamurthy, MIS Quarterly Executive, 2002
3/25/2009
The Scalable Model
Adapter
Strategic Flexibility through Sourcing
‰ Focus on Sourcing
Network.
‰ Leverage External
Partners.
Source: Agarwal & Sambamurthy, MIS Quarterly Executive, 2002
3/25/2009
18
Archetype
Who Makes IT Decisions?
Business Monarchy
Most centralized; senior business executives and
maybe CIO.
IT Monarchy
Decisions made by CIO or group of IT executives.
Federal
Collaboration between C-level executives, business
management and IT.
IT Duopoly
IT executives and a group of business leaders
representing operating units.
Feudal
Localized decisions made by each business leader or
group.
Anarchy
No IT governance; each individual decides what is in
his/her best interest.
Source: Ross & Weill, MIT Sloan Mgmt Review, 2005
3/25/2009
‰ Five IT Decision Areas
‰ IT Principles
‰ IT Architecture
‰ IT Infrastructure Strategies
‰ Business Application Needs
‰ IT Investment & Prioritization
‰ Variation in Performance Goals
‰ Profit
‰ Asset Utilization
‰ Growth
Source: Ross & Weill, MIT Sloan Mgmt Review, 2005
3/25/2009
19
‰ Project Level
‰ Steering Committees, IT Councils.
‰ Mutual Adjustment Mechanism to Emphasize Alignment
Requires Culture with Strong Shared Values
Source: Fonstad & Robertson, MIS Quarterly Executive, 2006
3/25/2009
Coordination
Innovation
I
ti
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20
Demand for
Coordination
Centralized
IT Decisions
Standardization
But…do standardization and centralization diminish innovation?
I
Innovative
ti Idea
Id
Execution
(-)
(+)
Standardization
3/25/2009
Questions and Comments?
CIO Collaborative
Research on IS/IT
Organizational Design
and Governance
3/25/2009
21
Thank you!
CIO Collaborative
Research on IS/IT
Organizational Design
and Governance
3/25/2009
22